asic_audit_report_analysis.docx

7/30/2019 ASIC_Audit_Report_Analysis.docx

1/10

Please put your name here

4/29/2013

AUDIT INSPECTIONREPORT OFASIC

Analysis

This paper is essentially aimed at disseminating the key issues that have been identified

and highlighted in the report provided by the ASIC pertaining to audit/auditors for the

financial year 2011-2012. Apart from just identifying and listing down the key issuesof the report, various other elements like discussions regarding the key points

highlighted, identifying and presenting the implications of the deterioration etc. have

also been presented.


2/10

4/29/2013

1

THE ISSUE

The Australian Securities and Investment Commission (ASIC) is the sole

authority in Australia that regulates the compliance requirements pertaining to financial

reporting and auditing of all the business organization of Australia in accordance to the

Corporations Act (2001) and offers all the entities relief from a few select requirements in

certain situations (Australian Securities & Investment Corporation (ASIC), 2012). ASIC

seeks to make sure that all the audit reports and opinions issued by the auditors are

extremely relevant and consistent, and ultimately aides the users in making better and

informed decisions.

In the recent report that was issued by the ASIC as part of its 18 month long audit

inspection program for the financial year 2011-2012, the ASIC inspected 20 different

Australian audit organizations by focusing predominantly on the auditing of financial

reports, specifically the public interest organizations that were prepared in accordance

with the Corporations Act. Unfortunately, the ASIC declared that the results of the audit

inspection were not very great and were actually disappointing due to the fact that the

quality of audits have not at all improved since the last similar inspection that was

conducted two years ago in the year 2010.

SUMMARY

The findings of the ASICs report predominantly highlighted three areas that

needs a lot improvement. They are as under:

the sufficiency and appropriateness of audit evidence,


3/10

4/29/2013

2

level of professional skepticism, and extent of reliance on other auditors and experts along with lack of

sufficient evidence (Institute of Chartered Accountants, 2013).

Sufficiency and Appropriateness of AuditThis aspect focuses on the adequacy and

pertinence of audit evidence available in the engagement files. The evidence thus

available on engagement files need to be such that it supports the audit opinion by

demonstrating clearly various procedures and conclusions of the auditor pertaining to the

key audit judgment or areas of risk. The areas that were identified to be improved

include, instances when relying upon audits done by other auditors or experts in the field,

validation of key balances, sorting the balances pertaining to material loan, contemplation

of fraud risk, and the disclosure of the financial statement.

Level of professional skepticism This aspect relates to the engagement files in

particular. It has been identified that the level of professional skepticism needs to

improve in specific areas of audit judgment. Such key audit judgment includes

calculations related to impairment, fair value measurement of the companys assets

among others (ASIC focuses for audit firms, 2011).

Insufficient evidence Evidence pertaining to the files of engagement with specific

relevance to the nature of entity, the duration of engagement and reviews of quality

control etc., can be improved a lot, according to the ASIC.


4/10

4/29/2013

3

IDENTIFY

ASIC with the help of a risk-based review identified that most auditors are non-

compliant to the actual processes or rules while obtaining reasonable assurance that states

that the financial report which has been audited is not misstated. The finding of the

report reiterate the significance of auditing as a profession and that this profession has

considerable amount of work to be done in order to articulate the true value of the audit

report and also the prominence of the service that auditors offer to the capital markets and

also the entire Australian Corporate.

The points highlighted in the earlier section relate specifically to the audit

engagement files. In addition, the ASIC also highlighted areas for improvement

pertaining to Quality Control as well. According to the ASIC report, quite a few

organizations have a definite need for improving the quality control systems at their end

in order ensure that they adhere to the plethora of independence requirements according

to the Corporations Act and also various other professional standards of the land.

Specifically, ASIC feels that organizations are required to manage the auditor rotation

more resourcefully (Australian Securities & Investment Corporation (ASIC), December

2012).

Even though many organizations have mostly fulfilled the Clarity auditing

standards quite well, adherence relating to a few elements of these standards need quite a

bit of improvement. Particularly, a few of the Other National and Network organizations

and the smaller organizations have a large scope of improvement in terms of their human

resources policies and structures, and the efficacy of their internal monitoring policies


5/10

4/29/2013

4

(Australian Securities & Investment Corporation (ASIC), December 2012). Moreover, it

was also identified that superior auditors suitably balance commercial burdens with risks

and thus do not compromise on the quality of the audit. Such auditors make sure that they

comprehend the business model of the organization that is being audited, various risks of

the business, both internal and external, and the impact of such risks on the nature and

scope of the procedures of the audit. Furthermore, in case of better audits, the partners

who are engagement bring together their expertise and experience and use the same in

efficiently assessing the business model of the organization that is being audited, the risks

of the business, both internal and external and also their impact on the nature and scope

of the auditing process (Australian Securities & Investment Corporation (ASIC),

December 2012).

DISCUSS

In the recent years, the rapid development of the global economy and the growing

prosperity of the global financial markets have resulted in a new trend of global economic

development in the form of economic integration. Moreover, the financial industry is

gaining more significance in view of the modern economic development. In other words,

the global economic integration simply translates to a unified global financial market.

The uncertainty and volatility of the financial system started getting exposed with the

rapid development of the financial industry (Hossein Jalilian, 2006).

Financial regulation plays a key role in keeping economies financially stable and

also helps evading economic recessions and financial crises (The Theory of Economic

Regulation, 1971). Many of the global financial crises have time and again proved that


6/10

4/29/2013

5

markets have failed due to less and insufficient regulation in the market. The most

important cause in addition to regulation issues is the discrepancies in the corporate

reporting. The crisis in the European Union, remarkably in the Greek economy, had

economies around the world fidgeting and bracing them for a global crash which got

averted in the very last minute. Today, the relationships between economies, talent

pools, and industrial resources are so great that a simple Brazilian frost can boost coffee

prices in Coorg (India). Similarly, a downward spiral in crude prices sees a positive

impact on economies around the world.

Financial regulatory problems have actually become one of the most important

issues in the contemporary era and they are constantly affecting the world economy as

well as the financial stability of numerous economies all over the globe (The adoption of

international accounting standards in Bangladesh, 2006, Vol: 18). Having said so, the

point that is to be highlighted is that financial regulation plays a key role in keeping

economies financially stable and also helps evading economic recessions and financial

crises. In the overall analysis, it is safe to conclude that whatever the underlying cause be

for the collapse of these institutions which eventually led to the 2008financial crisis it

leads to the total collapse of the entire economic eco-systems. The underlying causes

which start off in the holy pursuit of delivering higher value for shareholders ultimately

in the name of professionalism is nothing short of excessive human greed, total alienation

of organizational mission as well as the shareholders. Shareholders are reduced to mere

spectators in the annual meets conducted by these voracious and greedy organizations.

What starts off as an individual act leads to total collective failure.


7/10

4/29/2013

6

The ASIC feels that organizations can look at ways to dramatically improve and

maintain the quality of the audit with specific focus being given to audit evidence, the

degree of professional skepticism, and also the extent of evidence while also highlighting

the using other industry experts or auditors for auditing.

The report also indicated various instances where organizations have strong need

to review their approaches while considering seeking the services or opinions of other

auditors. This is to make sure that they attain adequate and proper independent

substantiation which will support their opinions about the audits done. This is also

applicable in the context of group audits (particularly in connection with business

components in emerging markets), interests in joint ventures, and the use of service

organizations. This work can include assessing the other auditors and reviewing their

audit work. There may be a cost associated with this work (Australian Securities &

Investment Corporation (ASIC), December 2012).

Auditors are required to obtain independent declaration with respect to the work

that company experts undertake and also related to the work that is taking up by the

experts that companies engage. There were quite a few instances reported in the ASIC

report where it would have been better to engage independent experts of their own

because external auditors lack the sufficient and required skills and expertise and also the

necessary experience. However, irrespective of the person hired for auditor, whether

external expert or an internal person, it is highly essential that the audit must be carried

out on all and every source information that the experts use in their audit.

RECOMMENDATION


8/10

4/29/2013

7

The following were few of the many suggestions that the ASIC offered in its

report. According to the ASIC, it is regarded that organizations, by adhering to better

practices would foster professional skepticism by adapting to the following measures:

Fostering a strong organizational culture that promotes and supportsprofessional skepticism.

directing flawless, consistent and unpretentious messages from the toplevel management of the organization, and various other stakeholders that

professional skepticism and the quality of the audit should not be

compromised for the purpose of meeting organizational deadlines and

budgets, or for supporting a specific consequence of the management,

and/or lastly for saving on the auditor fees.

By making sure that all the stakeholders of the organization and the staffassigned for the purpose of the audit are cognizant about the business of

the organization that is being audited, possess sufficient and relevant

industry knowledge, experience and a thorough understanding of the

requirements of financial reporting.

Offering relevant and adequate training to the personnel, strong directionand processes, consultation procedures, flawless technical support, and

review which include review of the quality control of the engagement and

the quality control of the organization as well. (Australian Securities &

Investment Corporation (ASIC), December 2012)

CONCLUSION


9/10

4/29/2013

8

Globalization has brought in great many advantages to individual economies as

well as global markets. Access to resources and manpower has virtually become

seamless. A successful framework is what is required in order to decrease the flaws that

have been identified to be present in the current audit procedures. While the issues

highlighted in the ASIC report were genuine and comprehensive, there are critiques who

claim that ASIC has indeed cast a clear and strong doubt over the entire audit profession

and industry of Australia as a whole. It is believed that the risk-based approach or study

of the ASIC has considered a very small sample for the study and also all the 20

organizations chosen for inspection were not of Australia. The minimal size of the risk-

based sample chosen by the ASIC offers focus areas and understandings for use by the

audit profession and practice for gaining continuous improvement along with high-

quality audits. It is believed by many senior auditors of Australia that, the audit

inspection program of ASIC is not a illustrative sample of audits in the Australia

continent, and hence Certified Practicing Accountant (CPA) Australia have their

reservations and doubt pertaining to the obstinate statements indicated in the ASIC

Report about the quality of audit in Australia.


10/10

4/29/2013

9

BIBLIOGRAPHY

ASIC focuses for audit firms. PublicAccountant - The Official Journal of the Institute of Public

Accountants. 2011. Melbourne : PublicAccountant - The Official Journal of the Institute of Public

Accountants IAvailable online at: http://pubacct.org.au/asic-focuses-for-audit-firms/), 2011. ABN 81 004

130 643.

Australian Securities & Investment Corporation (ASIC). December 2012.Audit Inspection Program

Report for 2011-2012. Canberra ACT : Australian Securities & Investment Corporation (ASIC), December

2012. 317.

. 2012. Financial Reporting and Audit - Overview.Australian Securities & Investment Corporation

(ASIC). [Online] Australian Securities & Investment Corporation (ASIC), August 10, 2012. [Cited: April

29, 2013.] Australian Securities & Investment Corporation (ASIC).

Dixon, Lloyd , Susan M. Gates, Kanika Kapur, Seth A. Seabury and Eric Talley. 2006.The Impact of

Regulation and Litigation on Small Business and Entrepreneurship: An Overview. Santa Monica, CA :

RAND Corporation, 2006. Research Report.

Hossein Jalilian, Colin Kirkpatrick, & David Parker. 2006.The Impact of Regulation on Economic

Growth in Developing Countires: A Cross-Country Analysis. UK : Cranfield Universtiy, 2006. Report.

Institute of Chartered Accountants. 2013. ASIC highlights areas for improvement in auditing.Institute of

Chartered Accountants. [Online] Institute of Chartered Accountants, February 18, 2013. [Cited: April 29,

2013.] http://www.charteredaccountants.com.au/Industry-Topics/Audit-and-assurance/Current-

issues/Recent-audit-headlines/News-and-updates/ASIC-highlights-areas-for-improvement-in-auditing.

Measuring convergence of National Accounting Standards with International Financial Reporting

Standards. Fontes, A., Rodrigues, L. L., and Craig, R.,. 2005, vol: 29. 2005, vol: 29, Accounting Forum,

pp. 415-436.

Regulation of accountancy and accountants: a comparative analysis of accounting for research and

development in four advanced capitalist countries. C.H. Willmot, K. Robson, D.J. Cooper, & E.A.

Lowe. 1992. 1992, Accounting, Auditing, and Accountabilty Journal (Vol: 5, no. 2), pp. 32-56.

The adoption of international accounting standards in Bangladesh. Mir, M. Z. and A. S. Rahaman,.

2006, Vol: 18. 2006, Vol: 18, Accounting, Auditing & Accountability Journal, pp. 816 - 841.

The Organizational Structure of Financial Market Regulation: Highlights from the Literature (Available

online at: http://www.bankofcanada.ca/wp-content/uploads/2010/04/fsr_0604.pdf). Parent, Christine Fay

and Nicolas. 2010. 2010, Financial System Review, pp. 53-59.

The Theory of Economic Regulation. Stigler, G. 1971. 1971, Bell Journal of Economics and Management

(Vol. 2), pp. 2-31.

asic_audit_report_analysis.docx

Documents